Sapare Wealth Management in North Carolina Settles with SEC over Unsuitable Investments

Stoltmann Law Offices, P.C. is a Chicago-based securities, investor protection, and consumer rights law firm that offers victims representation on a contingency fee basis nationwide.  We have represented thousands of investors who have been the victim of negligent or fraudulent investment advice. These claims range from unsuitable investment recommendations to Ponzi scheme cases. Our investor claims also involve every investment imaginable, including common and preferred stock, options trading strategies, alternative investments like REITs, BDCs, and Private Placements, mutual funds, ETFs, and structured products.

Sapere Wealth Management Recommended Clients Invest in Alternative Investments

According to the SEC complaint and settlement announcement, Sapare Wealth Management recommended that three of its clients invest $7.3 million in alternative investments it believed were somehow backed by gold.  They were wrong.  The SEC alleged that the recommendations to its investment advisory clients to invest in these two funds were unsuitable and thus constituted a breach of fiduciary duty.  According to the SEC’s complaint, which was filed in Federal Court in the United States District Court for the Western District of North Carolina, “Sapere and Trease (the firm’s principal) did not reasonably understand the investments and thus lacked a reasonable basis to recommend them to clients.”  The SEC continued, “The Investments included complicated insurance and bond funding deals recommended by ex-convicts who the firm did not do adequate background checks on.”

These allegations are really important because it relies on the part of the FINRA suitability rule that requires advisors to understand a product, through reasonable investigation, before they sell it to clients.  This part of the suitability rule needs to be met before the advisor can sell it and is separate and apart from the “customer specific” suitability analysis, which considers an investor’s net worth, investment objectives, income, and investment experience.

Alternative Investments Are Being Sold More and More to Investors

The increased proliferation of alternative investments being sold to retail investors just won’t stop.  There is simply no end in sight to it, so investors need to be more diligent than ever when their financial advisors, brokers, or investment advisors recommend they invest in “products”.  These alternative investments take on numerous different forms but two facts remain immutable: no matter what the investment is, your advisor will get a larger commission or “finder’s fee” for selling it to you; and it is certain to be some sort of investment with a very complicated and difficult to explain structure.

Because they get paid more to sell investors these complicated investments, it should come as no surprise they find their way into investor’s portfolios on an ever-increasing basis.  The problems with alternative investments are many.  They are always high risk and speculative, just read the offering documents!  Second, they are almost always illiquid, which means once your money goes into them, you can’t get the money out. At some point, these investments have a capitalization event, where they will distribute whatever capital there is back to their investors. The rub is, sometimes that’s five years, sometimes its ten years. And other times, the offering documents give the board for the investment entity discretion to change the rules whenever they want to delay distributions, cancel dividends, and reject requests for refunds.  Another very common issue with these alternative investments is their structure. A Non-Traded REIT for example, requires a forensic analysis to explain how the investment actually works and why it is a good idea to invest in it.  If your advisor cannot explain all of the details of an investment to you, you should not accept the recommendation.

What Should Investors Do If They Have Lost Money in Alternative Investments?

If you’ve lost money in alternative investments, you have a few options to pursue to recover your money.  Your first option is to consider some sort of lawsuit against the issuer (the company that issued the investment). That could take the form of a class action or a derivative suit for mismanagement of the company. Usually, investors are “limited partners” in these alternative investors, and there are rights you can enforce.

The other option, and probably your best, would be to sue the financial advisor, the investment advisor, and his or her registered firm for making the recommendation to invest in the first place.  Most of the time, these suits are handled through private arbitration through FINRA, AAA, or JAMS.  The attorneys at Stoltmann Law Offices have represented clients in multiple arbitration forums, have tried cases to conclusion in them, and have recovered approximately $100 million in lost investor funds since 2005.

If you lost more than $50,000 in alternative investments, you should call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, initial consultation with an experienced arbitration attorney.  We are a contingency fee law firm which means we do not get paid unless you do.